Tax reform should be pro-poor, progressive

Jun 03, 20172,348 Views

Research institution IBON said that government should be willing to forge a genuinely progressive tax system instead of adopting one that remains pro-rich. The group said this upon recent Congressional approval of the first part of the Department of Finance’s (DOF) Comprehensive Tax Reform Package (CTRP). Forging a truly progressive tax package is an important pending topic under fiscal and montary policies in the currently suspended peace negotiations between the Philippine government (GRP) and the National Democratic Front of the Philippines (NDFP), added IBON.

IBON said that as hyped, House Bill (HB) 5636 or the Tax Reform Acceleration and Inclusion Act (TRAIN) instructs the lowering of personal income tax. In particular, those earning no more than Php250,000 annually will pay less income tax starting January 2018. The bill requires an 8% tax on gross sales or receipts of the self-employed and professionals within the Value Added Tax (VAT) threshold of Php3 million. Those above this threshold meanwhile will be taxed a lower 30% of corporate income. Those receiving Php100,000 will be exempted from the 13th month pay. Lower estate and donor taxes of 6% will also be charged. Lottery and sweepstakes winnings from the Philippine Charity Sweepstakes Office (PCSO) will be taxed 20 percent.

Aside from excise tax on automobiles, HB 5636 imposes a Php10-per-liter excise tax on then VAT-exempted non-alcoholic sweetened beverages in liquid, powder or concentrate forms, said the group. The bill also imposes a substantial Php3-per-liter excise tax on diesel and liquefied petroleum gas and higher duties on gasoline and kerosene.

Tax revenues will mainly fund the Duterte administration’s trillions-worth of infrastructure spending. But the above will translate to lesser taxes on the rich, said IBON, which noted no less than the DOF explaining that the VAT base will be expanded to make up for the projected revenue loss. While government will be collecting around Php170 billion less from the richest, consumers will be paying more than Php340 billion for previously VAT-exempt items, according to IBON’s initial estimates.

These additional taxes on socially-sensitive goods such as oil products and drinks will bear heavily on the country’s majority low- or no- income households, reiterated IBON. The group said that the design of the package is far from inclusive nor progressive as the additional VAT does not spare the poor, unemployed and underemployed who have insufficient means to live decently.

IBON underscored that government should craft a tax package that collects from its constituents depending on the latter’s capacity to pay. The richest, as the biggest beneficiaries of the country’s economy, resources and labor, should be taxed the most while the poor should be taxed the least if at all. The government can do so through higher import tariffs, investment and corporate taxes especially on foreign firms, and by raising income, estate and inheritance taxes on the wealthy.

Tax reform is one part of overall development policy. It is crucial that government pursue national industrialization and other meaningful social and economic reforms for the country to achieve genuine development, IBON said. The peace negotiations are an opportunity to push for a progressive tax reform as part of the Comprehensive Agreement on Social and Economic Reforms (CASER).

The two panels generally commonly believe in orienting fiscal policy to expand social welfare, social infrastructure and state investment in priority productive sectors, social services, public services and economic services, noted IBON. Resuming the peace negotiations is an available and possible step to devising progressive tax system. It can be a start in the reduction of inequality, in the equitable distribution of the nation’s wealth, and in preventing the undue accumulation and concentration of economic power in the hands of a few, the group said.###